DAX continues to show strength
Last week DAX continued to show strength, in what is considered to be a technically positive momentum. German stock market is technically overbought, and volume pattern persists on being negative. Despite such a scenario, the technical horizon still shows sign of strength, giving potential further positive momentum up ahead if resistance breaks at 13 505. Potential weakness could come to light, in case support at 13 100 breaks.
German stock market continued to show strength during the past week. On Monday the DAX closed at 13 468.79.
Last week’s gain was stimulated by an overall positive market sentiment, growth and strong earnings reports, as well as a stronger U.S dollar and no geopolitical outbursts.
Increasing optimism surrounding U.S president Donald Trump and its push towards infrastructure and tax reforms has been seen driving the momentum globally, as its U.S economic growth could stimulate the international markets.
Last week republican party put upcoming plans to the table, tax reforms and lower taxes for companies and middle-class workers. Company taxation is suggested to be lowered from 35 to 20 percent, and it has been said that it will be cheaper and simpler for U.S companies to bring back foreign profits to the home turf.
A strong U.S dollar is considered to be positive based on a global market perspective, and if foreign profits are brought back home to the states, this could fuel the U.S dollar even further.
Both U.S and international market sentiment is therefor considered to be correlated, if U.S tax reforms will pass. In other words, in a different scenario, global sentiment about growth could be lowered, and negative sentiment arise, causing negativity even on the German stock market.
Long-term technical trend still shows strength for the DAX. In the weekly chart below, there is a clear pattern of higher lows and highs, and its 40-week moving average is also showing strength.
Weekly chart of the DAX
Volume pattern persist on being negative, which is sending slight warning signals. Days when the market is trading higher, is also not showing a higher turnover compared to the days when the market is trading lower. This could potentially be a sign that long-term investors are not currently net buyers.
Stochastic-indicator for the DAX shows a technically overbought scenario. On its own, this is not considered a sign of weakness, but increases the probability of a short-term correction within the current strength DAX is showing.
So far the market has not experienced any corrections, and profit taking. DAX is still showing signs of strength, and technically momentum seems to be there. Weakness could come to light however, in case the index starts trading below 13 000.
In the daily chart below DAX could already be in a scenario of weakness, in case support breaks at 13 100. Next technical support is located at 12 900.
Daily chart of the DAX
In the daily chart stochastic indicator is currently at high and overbought levels. It will be interesting to see how long DAX manage to stick around at this location, before corrections comes to light. In such a case, support is closely waiting at 13 100.
Based on a more short-term perspective, the hourly chart below is showing a case of consolidation. Potential weakness could be in order, in case support at 13 405 breaks. Next support is closely waiting at 13 200 – 13 250. In case DAX breaks resistance at 13 505 however, potential strength could be in order.
Hourly chart of the DAX
The current short-term interval between 13 405 and 13 505, is therefore interesting to keep an eye on. Testing or potential breakouts could provide the market with interesting opportunities.
Technically the movement in case of a breakout, could be getting slightly more significant momentum.
Long-term there is signs of strength, but with caution. Technically the index is overbought, and volume pattern persist on being negative.
Market turnover could be an interesting track point, in case breakouts occurs, as this could potentially be a good guideline of what is up ahead, if increasing relatively significant.
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